Delta Air Lines, Inc.

Good morning, everyone, and welcome to the Delta Airlines March quarter 2021 financial results conference call. My name is Travis and I will be your coordinator at this time. All participants are in a listen only mode until we conduct a question and answer session following the presentation. As a reminder, today's call is being recorded. I would now like to turn the conference over to Julie Stewart, vice president of investor relations. Please go ahead, Matt.

Thank you, Travis. Good morning, everyone, and thanks for joining us for our March quarter 2021 earnings call. Joining us from Atlanta today are our CEO, Ed Bastian, our president, Glenn Hauenstein, and our interim co-CFO, Gary Chase. Ed will open the call with an overview of Delta's performance and strategy. Glenn will provide an update on the revenue environment, and Gary will discuss costs, fleet, and our balance sheets. Similar to last quarter's call, we scheduled today's call for 90 minutes to make sure we have plenty of time for questions. For analysts, we ask you please limit yourself to one question and a brief follow-up so we can get to as many of you as possible. After the analyst Q&A, we will move to our media questions, after which Ed will provide a brief closing statement. Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in Delta's SEC filings. We'll also discuss non-GAAP financial measures, and all results exclude special items unless otherwise noted. You can find a reconciliation of our non-GAAP measures on the investor relations page at ir.delta.com. And with that, I'll turn the call over to Ed.

Thank you, Julie. Good morning, everyone. Thanks for joining us today. It's been a little over a year since the onset of the pandemic, and our customers are gaining confidence in air travel and beginning to reclaim their lives. Reflecting on what it's been in a year like no other, I'm tremendously proud of the progress that we've made and the agility that we've demonstrated. I've developed an even deeper appreciation for Delta's strengths and firmly believe that the pandemic has served as a catalyst for us to find new and better ways to serve our customers and our communities. Thanks to the incredible dedication and sacrifices of our people, Delta has weathered the storm with our culture, our brand, and our values stronger than ever before. And I want to thank every member of the Delta family for your incredible efforts over the past year. Collectively, you've carried us through and shown that unique spirit that we call the Delta difference. I also want to thank the administration and Congress for continued payroll support, which has protected thousands of airline jobs throughout the industry, and will help speed the US economy in the recovery. Thanks to that support, we've been able to return our people to full work schedules, despite running an operation that will be at 65 to 70% of 2019 levels in the June quarter. The first quarter had two distinct periods, with the first half feeling very much like an extension of 2020, as demand was slower than expected. But as case counts declined and vaccinations accelerated, Demand picked up meaningfully later in the quarter, allowing us to achieve $4 million of daily positive cash generation in the month of March, the first positive cash generation since the onset of COVID-19. This marks a critical milestone in the path to restoring our financials. It is truly a great accomplishment, especially considering that our middle seat block limited the inventory that we're selling, and business and international travel remain muted. It's also important to note that this metric takes into account all expenses that we're incurring as we rebuild our business. To have turned a true net positive cash flow position within a year of the biggest crisis ever seen in the history of this industry is a real testament to the resilience of the company that we have built. Consumer confidence in air travel continues to increase with the pace of vaccinations in the U.S. rapidly accelerating and predictions of herd immunity as soon as this summer. We said throughout the pandemic that one of the most important objectives was to restore confidence in air travel. We are now seeing more normal booking behavior as customers make plans for spring and summer travel. In fact, our daily net cash sales in March were twice what they were in January. As volumes grow, keeping our employees and customers safe and healthy will always be our top priority. We've taken a science-based approach to cleanliness and are being guided by our own Chief Health Officer, Dr. Henry Ting, as well as by medical experts at the Mayo Clinic and Emory. And earlier this month, the CDC confirmed that it is safe to travel within the U.S. for those who have been fully vaccinated, an important step forward for the recovery of our industry. We are aligning with the recommendations of health professionals and government officials who continue to ensure the safe and effective distribution of vaccines and listening to our customers. Based on our survey work, 75% of our customers expect to be vaccinated by Memorial Day. With improving demand and vaccine trends, we announced that we'll start selling middle seats May the 1st, providing a powerful tool for improving our financial performance. We also launched other customer experience and loyalty enhancements to increase confidence in travel and maintain the trust and loyalty that we've built over the last 12 months. Looking ahead and assuming that these recovery trends hold, We expect to cut our pre-tax loss by more than half in the June quarter to between one and one and a half billion dollars. And we see a path to returning to profitability in the September quarter. Delta's resilience has helped us navigate the worst days of the pandemic, driven by the competitive advantages that are core to our DNA. Those advantages, our people, our brand and loyalty program, our reliable operations, our network, and our balance sheet, will be even more important as we accelerate through the phases of recovery. These moats were tested like never before, and I'm proud of the resilience that they've demonstrated. Our people and our culture of service remain our most strategic asset. Loyalty to the Delta brand has never been stronger, thanks to the outstanding service that our people provide. They are truly the best professionals in the business. This is evident in our domestic customer net promoter scores, which have been in the low 70s throughout the pandemic. a full 20-point increase over 2019. We've also seen our customers continue to invest in the Delta brand using their American Express co-brand cards, demonstrating the resiliency of this unique revenue stream. Despite a large reduction in T&E categories, March co-brand spend on the card overall was up relative to March 2019 levels. Our operational performance remains strong. During the quarter, we led the industry in all on-time metrics, including A0, D0, and completion factor, which was more than 99%. And our network rebuild leverages the strength of our core hub structure in our international partner gateways. At the same time, we are renewing and simplifying our fleet, improving the customer experience, driving efficiency, and reducing emissions as we push toward our carbon neutral goals. And finally, the strength of our balance sheet enabled us to manage through the worst crisis in our history with no dilution to our shareholders other than warrants related to the payroll support program is something that continues to set us apart in the industry. We've begun our journey of delivering, and by the end of the June quarter, we will have reduced financial obligations by nearly $10 billion through a combination of paying down debt and accelerating pension funding since last fall. This reflects an unprecedented turnaround in the health of our pensions over the last decade, securing the future of our retirees. Later this year, we expect to make one final contribution to the plan of up to $1 billion, which should enable our pension to reach fully funded PPA status by the end of this year, largely mitigating the need for any additional cash contributions going forward. And finally, as we look toward the future, it's important to acknowledge that the commitment we made last year to achieving carbon neutrality is as strong as ever. The only future for Delta and our industry is a sustainable future. This is why we're accelerating our fleet renewal and balancing near-term needs for verifiable offsets with long-term investments in sustainable aviation fuels, carbon sequestration advancements, and clean propulsion technology. And because we can't do this alone, we are collaborating with corporate customers as well as large energy producers in order to address aviation emissions together and work to scale up sustainable aviation fuels. We're excited about the progress that we're making to combat climate change and enable a cleaner, more sustainable world. These steps are vital to Delta's long-term future, and we owe it to the next generation of customers and employees to continue down this path. The time for action, not talk, is now, and I'm proud of the steps our team is taking. As the recovery takes hold, glimmers of hope are now optimism for the future. Demand for air travel is accelerating in a meaningful way, and we are well positioned to build a stronger Delta as demand recovers to pre-pandemic levels in the next few years. With our competitive advantages having been fully tested, we have built a platform to extend Delta's leadership position in the years to come. More than ever, I am confident in the future of Delta and our people. Over the last year, we've taken meaningful actions to become a better, more sustainable, more inclusive company driven by our mission to connect the world.